Ranganathan, J.:— The question directed to be referred to this court under s. 66(2) of the Indian I.T Act, 1922, runs as follows:

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the loss claimed by the assessee was a capital loss and not a revenue loss?”

2. As we shall point out a little later, the question that arises is somewhat different and it will be necessary for us to reframe the question and answer the real controversy between the parties. But before doing so, it is necessary to set out the facts.

3. The reference arises out of the assessment of the New Bank of India Ltd. for the assessment year 1956-57, in respect of which the relevant previous year was the calendar year 1955. During this year of account, the assessee sold premises No. 25, Pusa Road, New Delhi, which it owned, for a sum of Rs. 82,300 after deduction of brokerage.

4. The asseseee claimed that the loss of Rs. 67,969, incurred as a result of the sale, was allowable under s. 10(2)(vii) of the 1922 Act. This claim was disallowed by the ITO, allowed on appeal by the AAC but disallowed again by the Income-tax Appellate Tribunal and hence this reference at the instance of the assessee.

5. The facts and circumstances relevant to the purchase and sale of this property are not in dispute. The New Bank of India Ltd. had originally its head office at Lahore, but at the time of partition of the country in 1947, it was shifted to Delhi. The staff at Lahore was transferred and came over to India and the bank considered it necessary that it should make arrangements for the proper residential accommodation for those employees who had been driven away from their homes in Lahore. With this object of providing residential accommodation to its employees in the tragic circumstances surrounding the partition of the country, the bank purchased 25, Pusa Road, New Delhi, soon after the partition of the country. Between 1947, and 18th July, 1955, when the building was sold, it was occupied by the employees of the assessee-bank. The bank employees who occupied the premises were charged rent at the rate of 10 per cent. of their salary. It is this building that was sold by the assessee during the accounting year with which we are here concerned.

6. In order to sustain the claim under s. 10(2)(vii) of the 1922 Act, all that the assessee has to show is that there has been a sale during the previous year of any building, machinery or plant used by it for the purposes of its business (s. 10(2)(vii) read with s. 10(2)(iv) of the Indian I.T Act). If this condition is fulfilled, then s. 10(2)(vii) provides for an allowance of the amount by which the written down value of the property exceeds the amount for which the building is sold. “Written down value” is defined in s. 10(5) as meaning, in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to the assessee under the Act. It is seen from the assessment order that the cost of the building to the assessee was Rs. 1,66,394. Subsequently, the assessee claimed some depreciation in respect of this property. It is also seen from the assessment order that the written down value of the property as per the assessment order for 1951-52 was Rs. 1,50,269. It is on the basis of this written down value adjusted against the sale proceeds of Rs. 82,300 that the loss of Rs. 67,969 under s. 10(2)(vii) has been claimed.

7. In rejecting the assessee's claim under s. 10(2)(vii) of the 1922 Act, the ITO as well as the Appellate Tribunal have laid stress on two matters. The first point made by them is that the property had not been acquired by the assessee in satisfaction of any of its banking dues and, therefore, it is not the stock-in-trade of the assessee. This ground, it will be seen, has no relevance at all to the claim made by the assessee. A claim under s. 10(2)(vii) pertains to a capital asset of the business and not to its stock-in-trade. It was not at all the claim of the assessee that this property represented its stock-in-trade. This objection is, therefore, of no consequence. The second objection, which appears to be a little more formidable, is that the assessee did not occupy the property directly for the purpose of its own business but on the contrary let it out to its employees, charged them rent and then had the income assessed for income-tax purposes under s. 9 of the 1922 Act. As we have already mentioned, the assessment order shows that soon after the purchase of the property it was treated by the assessee as a business asset and depreciation was also claimed and granted. But it appears that subsequently (apparently after the assessment year 1951-52), for some reason, neither the assessee nor the Department considered it to be assessable under s. 10 of the 1922 act and assessed the income instead under s. 9. It is on this conduct of the assessee that much stress has been laid by the Department. But what we have already stated will clearly show that it is not only the assessee's conduct that has been inconsistent, the Department has also assessed it in two different ways, for certain years it has been assessed under the head “Business” and for the following years under s. 9 as “Income from house property”. In this state of uncertain mind of the assessee as well as the I.T Dept., no reliance can be placed and much importance cannot be attached to the actual mode of assessment in the earlier years. This aspect, on which much stress has been laid by the ITO and the Tribunal, does not appear to us to be really conclusive.

8. The material question that arises is whether a property acquired by a company to utilize it for accommodating its employees, although it may not be free of charge, but on payment of rent, could be said to be a property which is occupied or used by the assessee for the purposes of its business. It appears to us that the answer to this question has to be given in the affirmative. A similar question arose in the case of Jamshedpur Engineering and Machine Manufacturing Co. Ltd. v. CIT, [1957] 32 ITR 41 (Pat). In that case the assessee-company was carrying on the business of manufacturing and selling agricultural implements. It constructed residential quarters for its employees and let out the quarters to its employees as incidental to its main business. The assessee incurred expenses for the repair and maintenance of the residential quarters. The question that arose was whether this expenditure could be allowed as a deduction and it was held that as the letting out of the residential quarters was subservient to and incidental to the main business, s. 9 of the Indian I.T Act did not apply, and the expenditure was allowable as a deduction from the profits of the assessee's business under s. 10(2)(xv) of the Indian I.T Act, 1922. The Patna High Court referred to the decisions in Russell v. Aberdeen Town and County Bank, [1988] 2 TC 321 (HL) and Usher's Wiltshire Brewery Ltd. v. Bruce, [1914] 6 TC 399 (HL) and came to the conclusion that though the assessee was the owner of the buildings let out to its employees, the main business of the assessee was that of manufacture and sale of agricultural implements and it was manifest on the facts that the letting out of the residential quarters was subservient to and incidental to the main business of the company. In this case, it appears that the quarters were constructed pursuant to a certain industrial adjudication and the employees were also occupying the premises not as tenants but as licensees. However, the basic principle of the decision is that though the company might not be actually occupying the premises itself, but using it only to house its employees, the provision of such residential accommodation is necessary as a matter of commercial expediency and that, therefore, the letting out of the accommodation to the employees should be treated as incidental to and subservient to the business. The same principle was reiterated by the Patna High Court in the case of Rohtas Industries Ltd. v. CIT, [1961] 41 ITR 524. In this case also the assessee which was carrying on the business in the manufacture and sale of cement, sugar, paper and pulp and certain chemical products let out buildings belonging to it, both to employees and to outsiders and the buildings in so far as they were let out to the employees were treated as buildings occupied by the assessee within the meaning of s. 9 read with s. 10 of the 1922 Act for the purpose of the assessee's business. The Punjab High Court had occasion to consider a similar question in the case of CIT v. Delhi Cloth and General Mills Co. Ltd., [1966] 59 ITR 152 (Punj). The Punjab High Court, following the decision of the Patna High Court in the case of Jamshedpur Engg. and Machine Mfg. Co., [1957] 32 ITR 41, came to a like conclusion. The reasoning in this decision is of a general nature and is not confined to a case of premises in respect of which it is shown that the occupation thereof by the employees was absolutely necessary for the day to day carrying on of the business. At p. 155, it was pointed out that the assessee carried on a number of businesses in which a large number of employees were engaged. The buildings occupied by them were in the vicinity of the mills and the employees were engaged in the main business of the company. It was pointed out that in a welfare State, it is the duty of the employer to provide residential accommodation to the employees and, therefore, the allotment of houses to the employees was not because the company was trying to earn, or engage in the business of earning rental income from the employees but was in order that the employees may carry on the business of the company more efficiently. The housing accommodation is an amenity which is provided for the purposes of the business of the company and not de hors that business. Discussing the meaning of the expression “occupied for the purpose of business”, used in s. 9 of the 1922 Act, the court pointed out that the word “occupied” should be given a broader meaning and not a very restricted meaning and that the occupation by an owner of property, through its employee-tenant should be treated as occupation of the property by the employer-owner for the purpose of s. 9. This decision of the Punjab High Court of 1965 is binding on us and we also respectfully agree with the principle laid down in this judgment.

9. In the present case, we have already pointed out that the assessee-bank was forced to purchase this property in somewhat special circumstances. It was a consequence of the migration forced on the bank and its employees at the time of partition of the country that necessitated the purchase. It is no doubt true that the bank did not occupy the premises for running its business but in the extraordinary situation following the partition the bank considered it necessary that its employees who had had to flee their homes in Pakistan should be provided with proper residential accommodation in order to enable them to function efficiently for the purposes of the business. The purchase of the property and its allotment to the employees were, therefore, made not with a view to derive the rental income from the property but on grounds of commercial expediency for carrying on the business of the bank more efficiently and fruitfully. The asset, therefore, was a capital asset and was an asset used for the purpose of the business of the assessee and, therefore, the assessee's claim under s. 10(2)(vii) should have been accepted.

10. From what we have stated above, it would be clear that the question that arises in this reference is not whether the loss incurred by the assessee is a capital loss or a revenue loss but whether the assessee is entitled to the loss under s. 10(2)(vii) of the 1922 Act. We, therefore, reframe the question in the following manner:

“Whether, on the facts and in the circumstances of the case, the assessee was entitled to claim the loss of Rs. 67,969 incurred by the sale of the Pusa Road property as an allowance under section 10(2)(vii) of the 1922 Act?”

11. We answer the above question in the affirmative and in favour of the assessee. As the assessee has succeeded, it will be entitled to the costs of this reference: Counsel's fee Rs. 350.